Focus on: The Art of Good Governance: Effective Nonprofit Leadership in Uncertain Times

It is a precarious time for the nonprofit sector. Economic uncertainty, political polarization, and growing public skepticism of institutions have created an atmosphere in which nonprofit organizations must operate under intensifying scrutiny and cynicism. Across the country, nonprofits are being asked to do more with less, to meet rising community needs while contending with dwindling funding sources, increasingly complex compliance obligations, and heightened expectations for transparency. The need for rigorous, responsible governance by nonprofit boards and their leaders has never been more acute.

Venable’s Nonprofit Organizations Practice advises nonprofit boards of every size and type through this evolving landscape. In our experience, effective governance depends on a board’s ability to remain attentive to a few critical areas: understanding fiduciary duties, maintaining mission integrity, exercising appropriate oversight without stepping too far into micromanagement, and ensuring sound financial stewardship. In this article, we explore common challenges that nonprofit boards face today and offer examples of how Venable attorneys work with boards to strengthen compliance, clarify responsibilities, and build resilient governance frameworks.

The Weight of Responsibility: What It Means to Govern Well

Boards and nonprofit officers carry legal obligations, expressed most plainly in the familiar triad of fiduciary duties: care, loyalty, and obedience. The duty of care asks directors to approach their role with diligence and employ sound-decision making principles. The duty of loyalty requires vigilance for managing conflicts and putting the interests of the nonprofit first. The duty of obedience binds the organization to its mission and to law: the board must ensure that programs, policies, and partnerships do not veer into prohibited activity or undermine the nonprofit’s established purpose.

Dysfunction tends to emerge from two opposing mistakes. At one extreme, a board can become engrossed in operational minutiae until oversight blurs into micromanagement. At the other end, a board can drift into passivity, enabling opportunities for financial mismanagement, compliance lapses, or mission drift. Venable regularly counsels nonprofit boards on best practices for board oversight versus day-to-day management by an executive staff team.

Clarifying the Boundary Between Board and Management: DC Central Kitchen

For one of our clients, DC Central Kitchen, the board’s work falls into three deliberate categories: sustaining fiscal oversight, safeguarding mission integrity, and supporting the chief executive’s leadership in running the day-to-day operations.

The most difficult conversations in governance are rarely about law and almost always about boundaries. Who sets strategy? Who decides when a promising initiative is “on mission”? How far may a director go in advising staff before counsel becomes direction?

Role clarity is not a matter of etiquette but a safeguard against failure. When DC Central Kitchen prepared to bring forward a sensitive compensation proposal, Executive Director Mike Curtin began the conversation months in advance with his board chair and treasurer, iterating the rationale, documenting the process, and anticipating the questions that might arise. By the time the proposal reached the full board, the groundwork had been laid, consensus was built, and trust had been secured.

The Framework of Compliance

Beneath the human aspect of governance lies a legal architecture, beginning with the governing statute in an organization’s state of incorporation. Then come the articles of incorporation, which should be concise and consistent with the statute. The bylaws sit below that, and below the bylaws, the policies that give life to your values and procedures.

We often see recurring problems—documents being out of date or misplaced, and bylaws that contain extraneous details or procedures that are incompatible with legal requirements. The remedy can be straightforward. Review the core documents on a regular cycle and shift specifics, like dues schedules, nomination timetables, committee charters, and expense reimbursement rules, out of the bylaws and into policies, where they can be updated more easily.

The same principle applies to approvals and delegations. Statutes typically reserve only a handful of decisions to the board itself: electing officers, filling vacancies, amending governing documents, and approving extraordinary transactions such as mergers, dissolutions, or major asset transactions. Nonprofits often need to balance the kinds of other matters that can be delegated to officers, committees, or staff. Similarly, membership organizations should exercise caution before putting matters to a member vote, which are logistically difficult, vulnerable to low participation, and, unless required by law or by your own bylaws, rarely necessary.

When the law requires a specific process, the organization must follow it, especially when approving transactions that involve insiders or potential conflicts or require notice to or consent from nonprofit regulators. For instance, related party transactions should be reviewed independently, supported by reliable data, and carefully documented. If a conflict arises, the affected director should step aside. And when questions come up about whether a board vote is truly required, the answer should be determined by the relevant laws and the organization’s own governing documents. Failure to take required procedural steps at the outset can lead to far more costly and complicated steps later, especially in the event regulatory review is initiated. We have worked with countless organizations in delicately navigating conflicts involving founders as well as long-tenured executives and members. We have also helped nonprofits that thought they took the required action but failed to secure the required internal or external approvals. We assisted them in retroactively curing the defective process to avoid jeopardizing strategically important transactions, such as when selling real estate or attempting to expel a board member.

Board Composition: Diversity, Expertise, and Renewal

Effective governance is dependent on who gets a seat at the table and how well the board members reflect the community and mission they represent. Many nonprofit boards remain significantly less diverse than the populations they serve, and directors are often recruited from too-narrow circles of affiliation. Funders, for their part, increasingly ask two simple questions: does your board reflect the community, and does every director donate?

We encourage boards to move from ad hoc recruitment to intentional design. Boards should begin by asking what mix of skills and perspectives the organization needs in the present moment. For a workforce development nonprofit, perhaps human resources expertise, lived experience with the program, and employer-partner perspectives matter more than marquee names. For an association, perhaps regulatory knowledge, geographic balance, and member-segment representation are the essentials. Term limits should not be seen as a penalty but as a means of bringing in new voices. They also solve the perennial problem of “forever seats.”

Venable attorneys often assist boards in evaluating composition, conducting skills assessments, and designing recruitment processes that draw candidates with the qualities their missions require. The goal is not simply representation, but engagement that strengthens governance.

Some organizations are finding creative ways to keep their boards grounded in the communities they serve. DC Central Kitchen, for example, reserves a seat for a graduate of its culinary training program, a simple step that ensures the board remains connected to the people and purpose at the heart of its mission. The organization also looks close to home when recruiting new members, by drawing from volunteers, hiring partners, and others already engaged with its work. Its approach to board giving follows the same principle of inclusivity: each member is asked to make a personally significant contribution, that must be one of their top three charitable donations, rather than a fixed dollar amount. Together, those practices have helped the organization build a board that is both representative and engaged.

Avoiding Surprises: Communication, Trust, and the Flow of Information

The most common breach in the board-executive relationship is not conflict but poor communication. Directors forgive bad news; they do not forgive learning it in the newspaper. A culture of no surprises is the cheapest form of risk management, but it requires buy-in on both sides. Simply put, management should furnish timely, comprehensible information. Directors should read it.

Venable often advises executives to brief the chair and key committee leaders early whenever a significant development is on the horizon, such as a budget shortfall, a shift in program risk, a regulatory inquiry, or a change that could affect public perception. At DC Central Kitchen, Mike Curtin did exactly that when a new Charity Navigator methodology threatened to drop the organization’s rating by a star. Rather than wait for speculation, he raised the issue with the board in advance, shared the correspondence, and provided a brief Q&A to ensure directors were prepared. This way, no one would be caught off guard if a rating change did occur.

Oversight Without Overreach: Knowing When to Intervene

Some issues must be promptly addressed by the board: conflicts of interest should be disclosed and managed under established procedures, antitrust risks stopped in real time, and any activity that threatens tax-exempt status corrected immediately. Other situations call for restraint. There will always be a director who wants to descend into the weeds, line-editing press releases, opining on event logistics, or reconstructing operational choices from the comfort of hindsight. We frequently see this within professional membership organizations where board members deeply understand their industry but not how to manage a nonprofit association.  The remedy is part structure and part leadership—a strong chair, a reliable nominations process, a focused orientation process, and an executive who knows which battles are worth fighting.

Succession and the Growth of Institutions

As many nonprofits grow faster than their foundations can support, boards must make sure that as programs scale, infrastructure keeps pace, and membership does not decline. Venable frequently works with organizations whose rapid growth has outpaced their internal systems, advising on how to modernize structures for finance, risk management, and personnel so that governance keeps pace with expansion and developments in the law and industry best practices.

Leadership transitions also test both structure and culture. Venable has advised numerous boards through the daunting process of crafting effective CEO exit strategies, whether in a routinely planned succession or an abrupt departure, and on dealing with personnel turnover and integrating new staff. While every succession situation has its own challenges, thoughtful planning and steadfast principles can empower organizations to prosper. We also advise boards on mergers and other strategic combinations, helping them navigate the challenges of blending boards, leadership teams, and identities, without losing focus on mission.

Risk and Resilience: The Expanding Compliance Landscape

The compliance environment for nonprofits changes more often than many boards may appreciate. Oversight does not come from the IRS alone; state attorneys general, charity officials, federal agencies, Congress, and private watchdogs all play roles, as does the court of public opinion.

Lately, most action is occurring at the state level and on a patchwork basis. For example, state-by-state fundraising rules continue to evolve, especially where nonprofits partner with for-profit companies on cause marketing or run multi-state campaigns. New restrictions in some jurisdictions limit nonprofits from accepting or soliciting contributions from certain foreign persons. International operations complicate compliance further, and establishing affiliates may require navigating unfamiliar incorporation regimes, benefit mandates, reporting standards, a web of sanctions requirements, and other challenges of dealing with dual legal regimes.

Tax-exempt law, too, is experiencing subtle shifts in enforcement strategy. The illegality doctrine and challenges to race-based scholarships, awards, and affinity events are also areas that have come to the forefront of conversations of late. Venable has worked with many charities to reassess their scholarship and grant award eligibility criteria in the wake of the Fearless Fund decision. Organizations are facing more scrutiny generally, particularly with regard to funding and grantmaking. In the past year, there have been a significant number of lawsuits impacting government grantees and contractors, and a cloud of uncertainty for resolving competing obligations stemming from rapidly evolving interpretations and shifting enforcement priorities.

Because no two nonprofits face the same compliance pressures, Venable tailors its guidance to each organization’s scale, mission, and risk tolerance, helping national institutions, trade associations, and small charities alike design right-sized frameworks that keep them compliant without constraining their work.

Building a Culture of Good Governance

Good governance is not just about rules, but also about culture. Documents matter, but so do habits: the way materials are prepared, the candor of the questions, the way disagreement is handled, the way agendas are organized, and the steadiness with which the board retains its focus on mission.

Creating that culture requires small, repeatable acts—orienting directors with care and context, and providing periodic training on fiduciary duties and an organization’s unique culture. Evaluate the board’s own performance, not merely the CEOs, and be honest about what must change. Celebrate service in ways that lift the floor on engagement. Above all, keep the board’s work proportional to the organization’s strategic issues and needs.

Venable encourages boards to view compliance as an everyday discipline that protects mission and builds trust. The strongest nonprofits are curious about their own weaknesses, attentive to the frameworks that govern them, and humble enough to procure outside help before trouble metastasizes. Devoting time to an honest board self-assessment each year can be time-consuming but is often worth the effort.

The Way Forward

These are difficult times for nonprofits, defined by rising need, shrinking resources, and growing scrutiny. Our attorneys have spent decades helping boards navigate this uncertainty—modernizing bylaws and policies without sacrificing flexibility, refining committee structures, designing conflict management systems, steering sensitive founder transitions, counseling on fundraising and political-activity rules, and building right-sized compliance programs for organizations from small charities to national associations and global NGOs.

If a board you are serving on is confronting any of the challenges described here, questions of role and boundary, documents that no longer fit, a board composition that no longer reflects the membership, or risks that feel newly complicated, Venable’s nonprofit team would welcome a conversation